Technology funds have emerged as the worst-performing equity mutual fund category in 2026 so far, delivering an average return of-10.47%. The underperformance comes even as the global artificial intelligence (AI) boom drives investment in technology infrastructure and raises expectations of a new growth cycle for the sector.
For investors holding technology mutual funds, the disconnect raises a question. should they continue their systematic investment plans (SIPs), or reconsider their exposure?
The weakness reflects concerns about the near-term earnings outlook for Indian IT services companies. While AI could create significant opportunities over time, its impact on traditional outsourcing and technology services businesses remains uncertain. Companies are also facing intensifying competition, pressure on conventional service lines and cautious enterprise spending.
An investment outlook released by Axis Mutual Fund in November 2026 highlights these risks. The fund house has an underweight position in the information technology sector, citing the limited near-term benefit of AI investments to discretionary IT services spending.
The report notes that much of the current AI investment is concentrated in infrastructure development. This does not necessarily translate immediately into higher spending on IT services, consulting or outsourcing contracts. It also cautions that AI could remain a margin and growth overhang for traditional IT companies before becoming a meaningful revenue contributor.
How have technology mutual funds performed?
The category’s weak showing is also reflected in the returns of individual schemes. Among the 12 direct-plan technology and digital funds, only three have delivered positive one-year returns. The remaining nine are in the red.
Edelweiss Technology Fund has delivered the highest one-year return of 6.20%, followed by Invesco India Technology Fund at 4.86% and Motilal Oswal Digital India Fund at 4.19%. At the other end, Tata Digital India Fund has posted the weakest return at -10.29%, followed by HDFC Technology Fund at -9.23%.
|
Technology mutual fund |
1-year return (%) |
| Edelweiss Technology Fund | 6.20 |
| Invesco India Technology Fund | 4.86 |
| Motilal Oswal Digital India Fund | 4.19 |
| WhiteOak Capital Digital Bharat Fund | -1.01 |
| Quant Teck Fund | -2.48 |
| Kotak Technology Fund | -3.84 |
| Franklin India Technology Fund | -5.80 |
| Aditya Birla Sun Life Digital India Fund | -6.70 |
| SBI Technology Opportunities Fund | -6.73 |
| ICICI Prudential Technology Fund | -7.38 |
| HDFC Technology Fund | -9.23 |
| Tata Digital India Fund | -10.29 |
| Source: Value Research. Returns as of 13th Nov 2026. | |
The largest funds in the list have also struggled. ICICI Prudential Technology Fund, with net assets of ₹13,154 crore, has returned -7.38% over one year. Tata Digital India Fund, with assets of ₹9,985 crore, has fallen 10.29%. SBI Technology Opportunities Fund and Aditya Birla Sun Life Digital India Fund have also reported negative one-year returns.
Why is the IT sector under pressure?
Axis Mutual Fund’s November outlook identifies several factors weighing on the sector. Competition is intensifying across large IT services companies, mid-sized firms, consulting businesses and specialist AI and data providers. This could make it harder for traditional IT companies to defend market share and pricing.
Management commentary and FY27 guidance also point to continued pressure on conventional services. At the same time, clients may take longer to commit to technology spending amid elevated interest rates, inflation and the lingering effects of supply-chain disruptions.
The report also flags the possibility that a weaker rupee could support margins for export-oriented IT companies. However, some of this benefit may be reinvested in building capabilities and competing in the evolving technology landscape.
The key uncertainty is how quickly companies can turn AI-related opportunities into billable projects and revenue. Higher AI adoption does not automatically mean higher earnings for every IT services provider.
Should investors continue SIPs in technology mutual funds?
A weak year does not, by itself, mean investors should stop their SIPs. However, technology funds are sectoral schemes, which means their portfolios are concentrated in one part of the market. Their returns can therefore be more volatile than those of diversified equity funds.
Investors should first assess how much of their overall equity portfolio is already exposed to IT stocks. A diversified fund may also hold technology companies, so adding a dedicated technology fund could increase concentration in the sector.
Those investing through sectoral funds should also be prepared for extended periods of underperformance. Rather than basing decisions on a single year’s returns, investors need to consider their investment horizon, risk appetite and the role of the fund in their overall portfolio.
Going forward, investors should track whether AI adoption translates into stronger deal wins and revenue, whether discretionary technology spending improves and whether traditional IT services businesses regain growth momentum. Margins and management guidance will also be important indicators.
The AI opportunity remains significant, but the timing and distribution of its financial benefits are uncertain. For technology fund investors, the central question is not whether AI will transform the industry, but whether the companies held by their funds can convert that transformation into sustainable earnings growth.
